HERMOJINA ESTORES, vs. SPOUSE ARTURO and LAURA SUPANGAN Respondents.

FACTS OF THE CASE:

On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laura
Supangan entered into a Conditional Deed of Sale[5] whereby petitioner offered to sell, and respondent-
spouses offered to buy, a parcel of land located at Naic, Cavite for the sum of P4.7 million.
After almost seven years from the time of the execution of the contract and notwithstanding
payment of P3.5 million on the part of respondent-spouses, petitioner still failed to comply with her
obligation. Hence, in a letter executed by the respondent-spouses they demanded the return of the
amount of P3.5 million within 15 days from receipt of the letter.
In reply,[8] petitioner acknowledged receipt of the P3.5 million and promised to return the same
within 120 days. Respondent-spouses were amenable to the proposal provided an interest of 12%
compounded annually shall be imposed on the P3.5 million.[9] When petitioner still failed to return the
amount despite demand, respondent-spouses were constrained to file a Complaint[10] for sum of money
before the Regional Trial Court (RTC) of Malabon against herein petitioner as well as Roberto U. Arias
(Arias) who allegedly acted as petitioners agent.
In their Answer with Counterclaim,[12] petitioner and Arias averred that they are willing to return
the principal amount of P3.5 million but without any interest as the same was not agreed uponThey
argued that since the Conditional Deed of Sale provided only for the return of the downpayment in case
of breach, they cannot be held liable to pay legal interest as well.[14]

RTC rendered its Decision[19] finding respondent-spouses entitled to interest but only at the rate of 6%
per annum and not 12% as prayed by them.[20] It also found respondent-spouses entitled to attorneys
fees as they were compelled to litigate to protect their interest.[21]

Ruling of the Court of Appeals

CA rendered the assailed Decision affirming the ruling of the RTC finding the imposition of 6%
interest proper.[25] However, the same shall start to run only from September 27, 2000 when
respondent-spouses formally demanded the return of their money and not from October 1993 when the
contract was executed as held by the RTC.
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent
(6%) per annum, computed from September 27, 2000 until its full payment before finality of the
judgment. If the adjudged principal and the interest (or any part thereof) remain[s] unpaid
thereafter, the interest rate shall be adjusted to twelve percent (12%) per annum, computed from
the time the judgment becomes final and executory until it is fully satisfied. The award of
attorneys fees is hereby reduced to P100,000.00. Costs against the [petitioner].

Petitioners Arguments

Petitioner insists that she is not bound to pay interest on the P3.5 million because the Conditional Deed
of Sale only provided for the return of the downpayment in case of failure to comply with her
obligations. Petitioner also argues that the award of attorneys fees in favor of the respondent-spouses is
unwarranted because it cannot be said that the latter won over the former since the CA even sustained
her contention that the imposition of 12% interest compounded annually is totally uncalled for.

HELD: The petition lacks merit. We sustain the ruling of both the RTC and the CA that it is proper to
impose interest notwithstanding the absence of stipulation in the contract. In this case, there is no
question that petitioner is legally obligated to return the P3.5 million because of her failure to fulfill the
obligation under the Conditional Deed of Sale, despite demand.

The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the
contract provides that the seller (petitioner) must return the payment made by the buyer (respondent-
spouses) if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled
as the seller (petitioner) has admitted this. Notwithstanding demand by the buyer (respondent-
spouses), the seller (petitioner) has failed to return the money and should be considered in default from
the time that demand was made.
Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of
the money be considered as a forbearance of money which required payment of interest at the rate of
12%? We believe so.

In Crismina Garments, Inc. v. Court of Appeals,[33] forbearance was defined as a contractual obligation
of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to
repay a loan or debt then due and payable. This definition describes a loan where a debtor is given a
period within which to pay a loan or debt. In such case, forbearance of money, goods or credits will have
no distinct definition from a loan. We believe however, that the phrase forbearance of money, goods or
credits is meant to have a separate meaning from a loan, otherwise there would have been no need to
add that phrase as a loan is already sufficiently defined in the Civil Code.[34] Forbearance of money,
goods or credits should therefore refer to arrangements other than loan agreements, where a person
acquiesces to the temporary use of his money, goods or credits pending happening of certain events or
fulfillment of certain conditions. In this case, the respondent-spouses parted with their money even
before the conditions were fulfilled. They have therefore allowed or granted forbearance to the seller
(petitioner) to use their money pending fulfillment of the conditions. They were deprived of the use of
their money for the period pending fulfillment of the conditions and when those conditions were
breached, they are entitled not only to the return of the principal amount paid, but also to compensation
for the use of their money. And the compensation for the use of their money, absent any stipulation,
should be the same rate of legal interest applicable to a loan since the use or deprivation of funds is
similar to a loan.

Petitioners unwarranted withholding of the money which rightfully pertains to respondent-spouses

amounts to forbearance of money which can be considered as an involuntary loan.Thus, the applicable
rate of interest is 12% per annum. In Eastern Shipping Lines, Inc. v. Court of Appeals,[35]cited
in Crismina Garments, Inc. v. Court of Appeals,[36] the Court suggested the following guidelines:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-

contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on Damages of the Civil Code govern in
determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of

actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the

payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court
is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes

final and executory, the rate of legal interest, whether the case falls under
 paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an equivalent
to a forbearance of credit.[37]

Eastern Shipping Lines, Inc. v. Court of Appeals[38]and its predecessor case, Reformina v.
Tongol[39] both involved torts cases and hence, there was no forbearance of money, goods, or
credits. Further, the amount claimed (i.e., damages) could not be established with reasonable certainty
at the time the claim was made. Hence, we arrived at a different ruling in those cases.

Since the date of demand which is September 27, 2000 was satisfactorily established during trial, then
the interest rate of 12% should be reckoned from said date of demand until the principal amount and
the interest thereon is fully satisfied.

The award of attorneys fees is warranted.

Under Article 2208 of the Civil Code, attorneys fees may be recovered:

xxxx

(2) When the defendants act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

xxxx

(11) In any other case where the court deems it just and equitable that attorneys fees
and expenses of litigation should be recovered.

In all cases, the attorneys fees and expenses of litigation must be reasonable.
Considering the circumstances of the instant case, we find respondent-spouses entitled to recover
attorneys fees. There is no doubt that they were forced to litigate to protect their interest, i.e., to recover
their money. However, we find the amount of P50,000.00 more appropriate in line with the policy
enunciated in Article 2208 of the Civil Code that the award of attorneys fees must always be reasonable.

WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court of
Appeals in CA-G.R. CV No. 83123 is AFFIRMED with MODIFICATIONS that the rate of interest
shall be twelve percent (12%) per annum, computed from September 27, 2000 until fully satisfied. The
award of attorneys fees is further reduced to P50,000.00.